Earn from passive income

Most fully-employed persons do not have the time or energy to do side hustles to augment their income. There are even ways of earning that do not require too much effort and would not take a lot of time to do. In fact, you can even earn while you’re sleeping.

Income streams like these are generally described as passive income sources. Unlike active income, which is money earned from your regular work or business, passive income comes from a variety of owned assets and investments.

Here are examples of passive income sources and where to get them:

• Time deposit accounts. Probably the simplest form of passive income in this list, time deposit accounts is your money held by a bank for a specified amount of time (between one and 24 months) with a promise of higher interest compared to what is given by an ordinary savings account. Depending on the bank, interest rates can go anywhere from 1.2% per year to as high as 7.5%. This is also secure as time deposit accounts are insured by the Philippine Deposit Insurance Commission (PDIC) for up to PHP 500,000.
  

A downside to time deposits is that the money cannot be withdrawn without incurring high pre-termination fees–you could potentially lose a small amount from your principal.

• Dividend-paying stocks and bonds: There are bonds and stocks that provide revenue through dividends. These are payments that you receive regularly from publicly listed firms with whom you own shares of stock or bonds. The amount you receive is based on the profits of the company and how many stocks you actually have. In the case of bonds, the dividends are based on the annual interest rate that the company promised to deliver.

  Stocks and bonds can be acquired by opening an account with an office-based or an online stockbroker. If you’re not familiar with how to get stocks and bonds, you can approach a bank who can help you open a stock trading account online and even hook you up with an investment specialist.

• Unit investment trust funds (UITF) and mutual funds. Less complex approach to investing in stocks and bonds is by investing in UITFs and mutual funds. These are a pool of money from different investors and are put in several other investment instruments, such as stocks and bonds, collectively called a fund. This diversification ensures that not all the money invested loses its value in one type of investment instrument in the fund. The key difference between the two is that UITFs are regulated by the Bangko Sentral ng Pilipinas while mutual funds are regulated by the Securities and Exchange Commission. UITFs can be acquired through banks while mutual funds can be acquired by accredited brokers.

  One challenge in mutual funds is that you cannot control where the money goes; once you give your investment, the amount is spread evenly across all the investment instruments identified in the fund. UITFs and mutual funds are also subject to 20% withholding tax.

• Income from real estate rental: If you own a house or a big lot, you may have it leased out to a tenant who can pay you a monthly rent. This is a good way to earn income especially if you are a homeowner who is near high-traffic locations. You can either rent out a house that you own or just a room for bedspacing.

  There are challenges to renting out a property. You have to spend time checking in with your tenants to see their situation and needs. If there are damages to your property due to wear and tear, you may have to spend on those, too. If this is taking too much of your time, you can hire a property manager to handle the maintenance and tenant issues.

  Alternatively, you can purchase real estate investment trusts (REITs), a newly established investment instrument. It works similar to UITFs and mutual funds but REITs are exclusively invested in different real estate properties, such as residential types and commercial spaces. These are offered through accredited brokers and have low barriers to enter (around 5,000). However, the dividends are subject to the performance of the properties and are also taxed.

• Royalties: Artists such as a musician, or a budding novelist, can receive income called royalties from your creation. Royalties are the license paid to the original creator when their creation is used or sold. On music streaming platforms such as Spotify, the creator can get some amount if his or her song is played by a subscriber. Some book authors also get paid when their digital books are purchased on an e-commerce platform.

  But royalties tend to be technically very complex, especially if the original creators are unable to acquire legal representation for their creations beforehand. If you’re an artist, make sure to get a lawyer who is an expert on copyright laws in the Philippines to ensure that your creations are protected and that you can continue to earn from them.

It may sound easy to do passive income but the initial work is always the most challenging. You have to take account of the assets that you own and if you are willing to use these for passive income.

Then, you have to align your passive income targets with your actual financial goals. Will the money from your passive income be used to pay for your monthly utilities, for your travel plans, or for long-term retirement? Also, most passive income streams do not always earn regularly or even earn a lot (they depend on the performance of the company or product and service they are invested in).

Still, passive income is a good option if you want your money to grow in value over a long period. So sleep easy and let your money grow.